PSA Could Sell Opel Cars Outside Of Europe

PARIS -- PSA Group CEO Carlos Tavares laid out his vision for Opel that could include expanding the German brand outside its European home market.

Tavares vowed to revive General Motors' European operations if PSA buy GM's Opel/Vauxhall business by carrying out a similar restructuring that brought the maker of Peugeot and Citroen cars back from the brink over the past three years.

PSA would cut costs, combine development efforts and exploit the appeal of German engineering. Opel, based outside Frankfurt, could in turn serve as a growth driver with potential expansion beyond its home region, a role that was limited under GM.

"This company needs help," Tavares said on Thursday in his first extended public comments since news of the talks about buying Opel emerged last week. "We believe that there is opportunity to create a European car champion."

Combining with Opel would improve PSA's competitiveness abroad, allowing the French automaker to offer a German alternative to customers who don't want to buy a French brand, Tavares said. Asked if Opel cars could eventually be sold outside of Europe, including in the U,S., Tavares said selling Opels outside of its European home was a possibility, but he did not mention the U.S. market in his answer.

Picking up GM's European operations, which are potentially valued at about $2 billion, would propel PSA back to second place in the region's car market, behind Volkswagen Group. Volume is critical in the mass-market car segment, and the addition of Opel's roughly 1.2 million in annual deliveries would help PSA spread the cost of developing autonomous cars and cleaner engines across a larger number of vehicles.

PSA is seeking to grow after a bailout in 2014 by the French state and Chinese automaker Dongfeng Motor and a painful restructuring that included a pay freeze and plant closure.

The French manufacturer already sells vehicles in the Middle East, Africa, South America and Asia and is also bidding for a stake in Malaysia's Proton Holdings, the owner of UK sports car brand Lotus. PSA seeking to return to Iran and struck an agreement in January to produce cars in India.

"The business sense is to make sure that we can capture a wider consumer base," Tavares said. "In some markets in the world we have customers who, despite all the progress that we’ve made, will not consider a French brand."

Halo effect

Bolstering Tavares's reputation as a turnaround specialist, PSA generated 2.7 billion euros ($2.85 billion) in cash in 2016, lifting its net automotive financial position by 49 percent to 6.81 billion euros. Recurring operating income jumped 18 percent from a year earlier to 3.24 billion euros in 2016 on lower costs. Automotive operating profit widened to 6 percent of revenue from 5 percent.

With those resources, "we are ready to grab opportunities," Chief Financial Officer Jean-Baptiste de Chatillon said. PSA can now deploy some of the cash accumulated since its recovery to "make profitable investments."

To woo support for the deal, PSA executives have been touring the region to repeat assurances that Opel's worker contracts and production sites would be respected. Tavares spoke with UK Prime Minister Theresa May on Wednesday about the role of Opel's UK sister brand Vauxhall.

Another key issue in the talks between GM and PSA is how the companies will manage the pension plan for Opel and Vauxhall retirees, people familiar with the discussions said. The program is underfunded by about $9 billion, according to data compiled by Bloomberg. Tavares declined to comment on that.

While a combination with Opel will help PSA cut costs, the German division will remain independent and its own executives will lead the brand's turnaround, Tavares said. Opel's predicament is similar to that of the French company four years ago and PSA wants to benefit from the "halo effect" of German marques.

"Not only can we bring a solution and help Opel turn itself around, but we want to keep this company German," he said.

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